Email this article to a friend

Finland has emerged as the latest flashpoint in the debate about the future of the euro, with finance minister Erkki Tuomioja telling the Daily Telegraph yesterday that the country had an “operational plan for any eventuality” regarding the currency’s future.

Finland has long been one of the more conservative voices on support for the European periphery and Tuomioja’s latest comments have prompted analysts to speculate about the prospects of a northern European creditor nation being the first to leave the currency union, rather than one of the bailed-out countries unhappy with the conditions attached to aid.

A debt capital markets banker active in the sovereign market told Financial News that the risk of an exit from the euro of a northern European country is a real one.

“The Nordic countries have less of a reason to be generous to Club Med than do the Germans, who themselves are pretty sceptical,” he said. “The focus recently has been on whether Spain and Italy will want to make the admission that they need help and enact the reforms that will entail but the richer countries could easily decide not to play ball.”

He also pointed to the example of Slovakia, which in October 2011 ratified the European bailout fund but only on the second attempt to secure national parliamentary approval.

Fixed income analysts at Investec believe other countries are also preparing for the worst: “You would expect other countries to have contingency plans for many eventualities, though few are willing to openly speak of preparations for a euro breakup – it may prove self-fulfilling,” the analysts wrote in a note published this morning.

Tuomioja also said that Finland would oppose the loss of senior creditor status for the European Stability Mechanism, which was suggested at the beginning of the month as a means of enticing private sector investors back to the peripheral government bond market.

This, Investec’s analysts believe, would limit the effectiveness of any aid programme.

Related

“Insisting on ESM seniority will make it very difficult to encourage private investors to invest alongside official funding,” they wrote. “Without private sector funding the ESM will not stretch very far should Spain and Italy need support, and it would be a big ask to expect the ECB to take up all the slack.”

Analysts elsewhere continue to fear, however, that the stumbling block to a resolution of the European crisis is the will of the poorer nations to request assistance.